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Privatisation results:
Private sector participation in water services after 15 years


Naren Prasad*

2006

SARPN acknowledges Overseas Development Institute (ODI) as a source of this document: www.odi.org.uk
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Privatisation of public infrastructure has been the mantra of many development agencies since the late 1980s. Water supply is no exception, and various forms of private sector participation (PSP) have been tried in the water and sanitation sector. This article examines the results of these experiments. It suggests that PSP has had mixed results and that in several important respects the private sector seems to be no more efficient in delivering services than the public sector. Despite growing evidence of failures and increasing public pressure against it, privatisation in water and sanitation is still alive, however. Increasingly, it is being repackaged in new forms such as that of public-private partnership.

Introduction

It is well established that improvements in public utilities infrastructure (water, roads, electricity, telecommunications, ports, airports) are a necessary condition for enhanced economic performance and poverty reduction. Countries follow different models in terms of the degree of public- and private-sector involvement in the provision of such services. However, some patterns hold across the range of country contexts. Whereas there seems to be general consensus among policy-makers and experts that governments should disengage from the telecommunications and electricity sectors, government’s role in the supply of water services is controversial. Unlike some other fields of public utilities infrastructure, water is seen as unavoidably social in nature and evokes political emotions like no other issue.

Privatisation and other varieties of private sector1 participation (PSP) in water services tend to be associated with neo-liberal reform strategies. Such strategies emphasise the importance of the market, fiscal discipline, trade, investment and financial liberalisation, deregulation, decentralisation, privatisation and a reduced role for the state (Robison and Hewison, 2005: 185). Within this approach, objectives such as a limited welfare state, a flexible labour market and restrictive fiscal policies are given priority over those of traditional social policies. These strategies are also referred to as the Washington Consensus.2 PSP was introduced in developing countries as the linchpin of the Washington Consensus. It was argued that PSP would bring in much needed investment, increase access and improve the quality of the water supply. Historically, most water systems in developed European countries were initiated by the private sector. However, today it is the public system which provides water and sanitation in most countries. It is estimated that over 90% of the world’s population is currently supplied by the public sector. The funding comes generally from taxation, borrowing and user fees.

After over 15 years of experimentation with various forms of PSP in water supply, it is time to take stock of the results. This article evaluates the lessons learnt, drawing on empirical evidence and a review of the literature. In particular, it investigates the impact of PSP on access and on the poor. In doing so, it also aims to present the state of the art and current issues facing water supply in developing countries. The evidence gathered suggests that PSP has not achieved the desired results, especially in developing countries, and that examples of failure and difficulty are increasing. Nevertheless, the article concludes that the PSP debate is still alive, with privatisation increasingly repackaged in different forms such as public-private partnerships (PPP).


Footnotes:
    * Research Co-ordinator at the United Nations Research Institute for Social Development (UNRISD), Palais des Nations, 121 Geneva 10, Switzerland (). He is grateful for useful comments from Thandika Mkandawire and colleagues at UNRISD.
  1. Private sector in this article refers to firms which have the commercial objective of making a profit. In practice, the firms involved are often multinational water supply companies.
  2. John Williamson (1994) was the first to coin this term, referring to the orthodox economic policies promoted by the US Treasury, the IMF and the World Bank.


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